Monday, 22 June 2009

Killer arguments against LVT, not (9)

From the comments here, we get the usual innumerate ramblings:

"Who then takes the benefit when the property is sold." Oh well that's OK then, never mind that people have household budgets, just tell them to sell the house if they find themselves short because of a cost forced upon them.

I do wonder sometimes whether people genuinely can't understand, or just don't want to understand.

Under the current system, somebody who buys a home pays large amounts in VAT, NI, income tax (A) and also a large mortgage (B). LVT would reduce the amount of the mortgage £ for £, so under a Georgist system, they would pay no income tax; and a combined LVT/mortgage bill equal to (B) and receive a Citizen's Dividend (C).By definition, B - C = A + B.

So for the life of the mortgage, the home-buyer would be better off. Of course, most mortgage borrowers pay off their mortgage after (say) twenty years - under current rules, they then still have to pay Council Tax and Income Tax. Under a Georgist system, after the mortgage had been paid off LVT minus Citizen's Dividend would be approximately the same as current Council Tax, maybe twice as much, but certainly a lot less than income tax + Council Tax, so they're still ahead of the game.

So yes, people who have bought a house in an area that becomes more desirable see a slight increase in their LVT bill, but only to the tune of a few hundred pounds, maybe even a couple of thousand in extreme cases. If they are still paying their mortgage, they can just reduce the mortgage repayments to compensate for the increased LVT, thus spreading the overall larger payments on a now more valuable property. And if they've paid off the mortgage, they either take the higher LVT bill on the chin (because it's worth a few hundred quid extra to stay living there) or they trade down. As mentioned before, pensioners would have a roll up option anyway.

Of course, if house prices rise generally (because economy is doing well or because interest rates have fallen), then everybody's LVT bill goes up, but so does the Citizen's Dividend, and it all nets off nicely.

What's not to like?

12 comments:

Anonymous said...

How does this affect someone who has bought close to their limit.

Anonymous said...

You seem to think the State will introduce a system which is largely tax-neutral.

Naive or what?

In fact, LVT would be additional to everything else we already pay, but small to start with.

Later, of course, it would become another cash-cow.

dearieme said...

I haven't read all your arguments, Mark, so this may be irrelevant, but: it's one thing to argue that a new tax system would be an improvement, it's another thing to work out a practical way to introduce it without rioting in the streets.

Mark Wadsworth said...

Anon 1, there nothing I can do to prevent reckless borrowing - but at least such a system largely prevents price bubbles (which is the main reason why people overborrow) and hence reduces crashes (which is main cause of unemployment, which in turn is main cause of repossessions)

Anon 2, and is it my fault that people keep voting for the Blue wing or the Red wing of the large-state-high-tax-homeowners' party?

D, either gradually. Or suddenly. Or anything in between.

dearieme said...

Wot, like the Poll Tax?

Mark Wadsworth said...

The Poll Tax was A Fundamentally Bad Idea, that's not a fair comparison.

AntiCitizenOne said...

One of the interesting things about a Citizens Dividend paid to every citizen equally would be to create a pressure on everyone for smaller government (i.e. a larger CD).

Also MW forgets to mention that an economy without harmful taxes on transfers would be MUCH wealthier.

TheFatBigot said...

To argue that a new system will cause certain benefits to accrue is a real hostage to fortune. It becomes mere speculation if the alleged benefit is dependent on human beings reacting to the new system in a particular way.

If small government and low tax is the order of the day LVT might deliver the consequences you predict, Mr Wadsworth. But there are too many ifs and buts.

Nothing guarantees that small government and low tax will remain the mood, even if we were ever lucky enough to have them become the mood in the first place. What happens on a change of mood when there is only one tax to bear the burden?

And who says the combined LVT and mortgage bill will be equal to the cost of a current mortgage for the same property? That is simply unknowable, it might be higher it might be lower. The one thing that is statistically off the scale is that it would be the same.

And who says LVT minus CD would be "approximately the same as current council tax"? That's pure speculation.

What mechanism do you propose putting in place to ensure that CD maintains its real value and LVT is kept down to the level required to deliver the benefits you claim?

Clearly you don't propose such a mechanism because in your penultimate paragraph you talk of an increase in LVT of "a few hundred pounds, maybe even a couple of thousand in extreme cases". Your answer to the difficulty this would cause is (i) pay less to the mortgage or (ii) trade-down. (i) involves a breach of contract unless you require lenders to lend on the basis the borrower can pay whatever he likes. (ii) raises the problem of additional costs associated with trading-down that I raised in an earlier comment. And all of it assumes that increased value today due to a favourable local development will be permanent, which is something I find difficult to accept.

"if house prices rise generally (because economy is doing well or because interest rates have fallen), then everybody's LVT bill goes up, but so does the Citizen's Dividend, and it all nets off nicely." Pull the other one. Even if we were lucky enough to have a government unwilling to use increased tax revenues for pet projects, it could never net-off because of the bureauocratic costs involved in re-assessing for LVT - by definition LVT cannot go up without an increased "official" valuation.

Sorry old chum, but the more you try to dismiss objections to LVT as the result of unthinking ignorance the more holes you punch in your own theory.

Mark Wadsworth said...

TFB, I agree that the electorate prefers the comfort blanket of high-tax large-state parties that pander to home-ownership, so I have an uphill battle with education first.

But as to the economics and maths of it, I have given real-life examples and workings on dozens of occasions, but people still just refuse to accept the real-life examples I give.

For example, you say this:

"who says the combined LVT and mortgage bill will be equal to the cost of a current mortgage for the same property?"

OK. I can give you three examples to 'prove' this:

1. As we know, when interest rates rise, house prices fall (and vice versa). That is because buyers have a fixed budget, and house prices adjust up or down so that the price x the interest rate = buyers' budgets.

2. We also know that for two otherwise identical houses, if one is in a high Council Tax area, its price is slightly lower (there was once a street in west London where this was the case - one half in one council and one half in another), because the higher Council Tax uses up part of the budget that the buyer would use to spend on mortgage.

3. After Schedule A was scrapped (which reduced tax cost of owning a house), house prices doubled relative to wages in ten years.

Based on these two example, I conclude that LVT would act like a higher interest rate/higher council tax; this would depress the price of the land element of a house price and the total LVT + mortgage repayment would thus be much the same as council tax + mortgage repayment would have been.

You also say this:

"who says LVT minus CD would be "approximately the same as current council tax"? That's pure speculation."

Why do you say that?

We know that the core functions of the State cost around £100 billion per annum. Thus the CD would be £100 billion less than the LVT. Let's say a fifth of that is raised from commercial premises, leaves £80 billion, divid by 27 million households in the UK = £3,000 average net tax bill (LVT minus CD), but because property wealth is unevenly distributed, the median household would be rather less than that, let's say £2,000. So I should have said 'twice as much as council tax', but the figures are very low (and certainly a lot less than VAT which currently costs £3,000 per household).

On a final point, maintaining up to date values is a doddle on an ongoing basis, because HM Land Registry already has 99% of the information needed to work out average land values in every postcode sector - all it needs is a rough and ready figure for bricks and mortar to minus off from selling prices to get to land value - remembering that it is relative rather than absolute values that are important.
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I have met plenty of people who refuse to accept that my real-life examples are true, let alone that they allow me to draw the conclusion that I do.

But if you are prepared to site down and think about it, the only problem is a century of parties bribing voters with house price rises and council houses at a discount and so on. As you can see, it is not working very well, never has done, never will do.

wildgoose said...

I agree entirely with you Mark.

I thought I'd butt in and say that because like you, I am sick of seeing the most ridiculous reactions to your eminently sensible proposals.

The Great Simpleton said...

It looks like we're already getting a form of LVT, in the form of TIF's (tax Increment Financing)

http://www.economist.com/world/britain/displaystory.cfm?story_id=13919645

"The idea is to draw a boundary round an area, borrow to pay for basic infrastructure and repay the loan from the increase in property-tax revenues inside the redeveloped zone as private firms start building.

Edinburgh hopes to test out TIFs on a square kilometre in the suburb of Leith, borrowing £50m to build roads, a dock for mooted cross-river ferries and a new pier for the former royal yacht Britannia, now a tourist attraction moored behind a modest shopping centre. Dave Anderson, the city’s development director, hopes that 2,200 houses, plus shops and offices, will follow. PricewaterhouseCoopers, an accounting firm, reckons all this will pull in an extra £280m in business rates (property taxes) over the next 30 years, more than enough to repay the loan."

Althouth this is only to replace the legalised extortion known as "planning gain".

Mark Wadsworth said...

TGS, thanks for that, but the revenues they are talking about is Business Rates, which is pretty much the same as LVT, to be honest.

I agree that trying to tax 'planning gains' is a hiding to nothing.